tv Nightly Business Report PBS October 26, 2010 6:30pm-7:00pm EDT
>> tom: many think the federal reserve will give the economy another shot of cash next week, whether it needs it or not. >> the question is, do you really need quantitative easing at this stage, and i think the answer, in our view, is no. but yet, they seem intent on doing it in order to remove the very small probability that we have a double dip or move into another recession. >> susie: a look at whether pumping billions of dollars into the economy is the fed's best move. you're watching "nightly business report" for tuesday, october 26. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. how much, and how long? susie, those are the questions everyone wants to know from the federal reserve as it considers its next move to help the economy. >> susie: tom, we're talking about how much money the fed will pump into the economy, the so-called "quantitative easing" that everyone's talking about. policymakers meet in washington a week from today to talk about just that. >> tom: the hope is that easing will boost the economy.
but as scott gurvey reports, there are mixed opinions on whether this fed strategy will do much good. >> reporter: the fed has done everything but sky write its plans. the only questions awaiting answers at next week's policy meeting-- how many treasuries will the central bank buy, and over what time period? half a trillion dollars at the rate of $100 billion per month is the consensus view. but will pumping all this money into the economy boost growth? drew matus of u.b.s. says it's not a lack of cash that has banks holding back on lending. >> banks aren't lending right now because the risk/reward is not aligned properly. so, for example, they don't know what the future holds any more than the fed does but, simply put, if they get it wrong, there's a cost to their shareholders. and i think, right now, they're a little concerned about that. >> reporter: where the banks might be willing to lend, there is little demand. michelle girard of r.b.s. says big creditworthy companies have been able to raise funds without going to the banks.
>> their profit levels have been very good. so even those who are willing and wanting to expand, a lot of them already have the funds they need, and as a result, i think the lack of demand is a big explanation why we're not seeing a lot of bank lending to businesses. >> reporter: while it is accepted that a new round of quantitative easing is coming, there are some in the financial community who do not believe it is needed at all. >> the question is, do you really need quantitative easing at this stage, and i think the answer, in our view, is no. but yet, they seem intent on doing it in order to remove the very small probability that we have a double dip or have another recession. >> reporter: there are others who are already looking for the fed to take yet another step-- lowering the interest rate it pays banks which park their excess reserves at the fed. >> even the fed is not confident that it's going to have a significant economic impact, and i don't think that they are fooled into thinking that if they cut the rate that they're
paying banks on reserves, that banks will suddenly go out and make loans. but the bottom line is, if banks cannot earn anything from putting the money at the fed, they'll probably find some more productive use. >> reporter: fed watchers say the biggest risk to quantitative easing is inflation. but there is no sign of inflation at this time, and should it appear, the fed believes it would be able to tap on the brakes quickly. scott gurvey, "nightly business report," new york. >> susie: here are the stories in tonight's "n.b.r. newswheel." strong earnings from ford motor helped stocks close in positive territory, just barely. the dow rose five points, the nasdaq added six, and the s&p 500 was up fractionally. i'll have a closer look at ford in a few moments. trading volume fell from yesterday's levels here at the big board, but picked up on the nasdaq. consumer confidence is improving, but it's still near historic lows. the conference board's index of consumer confidence rose to a reading of 50.2 this month, slightly higher than expected. and home prices are trending lower.
the s&p case shiller index shows prices fell slightly between july and august. but looking year over year, there's progress; august to august, the 20-city index was up nearly 2%. still ahead, the word on the street is "online." thestreet.com's james rogers joins us for a look at some under-the-radar tech stocks powering the internet. the best third quarter ever-- that's the word from ford motor today. its earnings jumped 69%. excluding special items, the auto maker earned 48 cents a share, ten cents higher than estimates, and the sixth straight quarterly profit. revenue slipped a billion dollars to $29 billion, but sales were still better than estimates. the company also said now that it's in better financial shape, it will aggressively reduce its debt. when i spoke with ford c.e.o. alan mullally today, i asked him why paying down debt is so
important right now. >> we will now, for the year, to date, have repaid $10.8 billion of our debt, paying back the loans. that allows us to save on an annualized basis over $800 million in interest payments. this is so important because now we can free up that cash to invest in more cash and further grow the business. >> looking at your financials, you reported record volumes but low sales. what more does ford have to do to sell more cars, especially with consumers so cautious? >> the most important thing we can continue to do is help people understand they have great choices from the ford motor company. whether they want, small, medium are large utility trucks. they're best in fuel-efficiency and smart design. helping everybody
understand that and they've got the fiesta and the focus and fusion and taurus, and on up in size. this is a slower recovery than we've ever had from a recession, but it is a recovery. i think at the economy continues to improve, we're going to be there with the right products to help with the recovery and have the vehicles people want in value. >> susie: we hear so many stories of people having difficult times in getting loans. for people who do want to buy a car, how are they paying for it? >> credit is becoming more available. of course, when you come to ford, we also have our own credit corporation. so we can help with the financing of your vehicles, too. what is neat about ford, when you come to ford, you have a one-stop shopping, not only for the great cars and trucks, but also for the different financial schemes that work for you. >> susie: do you think that the federal reserve's plans to pump more money into the economy will make it easier for american consumers to borrow money so they can make big
purchases like cars? >> i absolutely think that the laser focus that the administration has on fiscal and monetary policy that can further, further develop the economic activity is absolutely the right thing to do. we're seeing that in the credit markets, and we're also seeing that in the purchase behavior. and even this month, in october, we're seeing an increase in sales over the last month. so, again, it is a slower recovery than we've had in the past. but it is a recovery. i think the most important thing we do is nurture this recover and keep the economy expanding. >> susie: you announced you're going to be hiring 1200 more workers as ford ramps up in michigan. is this a sign that the u.s. auto industry is getting back to normal, or only at ford? >> the industry is gradually recovering. we recovered from a 30-year low last year. the first nine months were at about 11.5 million vehicle market. we're seeing that improve
in october. we anticipate that next year will be a further improvement with the expansion of the economy. so one of the things that you mentioned is that with the vehicle lineup we have now, we're introducing more vehicles -- we probably have the freshest lineup of any automobile company for our consumers, and we're expanding our production to meet this increasing demand. >> susie: how much longer do you think it will be before total u.s. sales get back to the 15 million, 16 million units a year? >> well, it's pretty correlated with the economic activity. so what we're seeing this year is maybe -- when we end the year, around a 3% expansion in g.d.p. we believe we're going to have at least that and a little more in 2011. so over the nextwo or three years, that would -- that would facilitate us growing the industry and supporting the sales that people want, back to the 15, 16 level. >> susie: let's talk a little about china.
as you know, the market for cars there is growing enormously. analysts tell me ford's position in that part of the world is not as strong. what is your china strategy? >> i china strategy is to grow the business even faster than we are growing in the united states and europe. and the neat thing is we have a great presence in china. we have a manufacturing and design operations, and a great dealer network. so we are now going to bring the full family of ford vehicles that we have, that have been designed for china and the rest of the world, to bring them and make them available to the chinese costumers as quickly as we can. that's our plan. >> susie: good luck to you, and thank you so much for talking to us today. >> thank you very much, susie. >> tom: ford and general >> tom: ford and general motors are also revving up their reliability. the detroit auto makers moved up the list of this year's "consumer reports" ranking of reliable cars. g.m. was helped by new vehicles
like the cadillac srx; ford got a boost from its fusion mid- sized car. but both still rank behind toyota and honda. for the third straight year, toyota's scion brand had the fewest problems. it was followed by porsche, acura, honda and infiniti. toyota fared well in the survey, despite recalling more than ten million vehicles over the last year. subaru, volvo, lexus and ford rounded out the top ten most reliable brands. >> susie: in other transportation news, a federal panel is looking into whether small regional airlines are held to the same safety standards as major carriers. the national transportation safety board is reviewing so- called "code sharing agreements." agreements." they let big carriers sell seats on flights operated by smaller carriers. the regional airline industry says safety is its top priority, but critics of code-sharing say it permits two levels of safety- - one for large airlines, another for small. the last six fatal domestic airline crashes all involved regional airlines.
>> susie: as we reported, tom, some small gains on wall street today. but i believe the bottom line is investors are still worried about the economy, and the consumer confidence numbers didn't give them much confidence to buy. >> tom: not at all. very small gains. but we're still near six-month highs for the major indices, so that's the bright spot. let's get everybody updated in tonight's market focus.
a direction-less trade in stocks today with the major indices ending essentially where they were last night. consumer stocks both led and lagged the market. here are two consumer-focused exchange traded funds showing the story today. the consumer discretionary e.t.f. climbed four-tenths of a percent, thanks to earnings and merger talk. the consumer staples fund slid more than a half percent, driven also by earnings. on the discretionary side, coach was the big winner, up 12% on four times average volume. this is a new 52-week high. much better than expected earnings from the handbag maker helped fuel the rally today. the company is making a big push online for the holidays. consumer spending may be under pressure, but coach hasn't felt it. cruise line operator royal caribbean sailed off with a strong quarter and a strong outlook. it used less fuel, which also helped profits.
shares jumped almost 15% to a two-year high on very heavy volume. the royal caribbean outlook helped competitor carnival. its stock was up 6%. and retailer abercrombie and fitch found buyers on a return of market rumors regarding a possible buyout, but nothing was substantiated. on the consumer staple side, driving that sector lower was paper products giant kimberly clark. it was a disappointing quarter, with profits falling from last year and coming in below estimates. even though sales were up, kimberly-clark was hurt by higher commodity prices and aggressive price discounts. here are the last 180 sessions of kimberly clark. the stock had been trending higher, but dropped off a cliff today, falling 6% on heavy volume. in addition to the earnings miss, the company lowered its outlook. another one to watch in this sector tomorrow is procter and gamble. p&g is due with earnings tomorrow. the stock got caught up in the selling pressure today, sliding 1%.
global growth and promotion spending are two areas analysts say to watch. steel stocks saw sellers today as earnings cooled from strength earlier this year. this trio all reported results today. arcelor mittal slid more than 5%. it said high iron ore and coal costs will hurt its performance for the rest of the year. its c.e.o. said consumer confidence has deteriorated. u.s. steel fell more than 3%. it reported a loss for the quarter but, again, higher iron ore prices are hurting. and a.k. steel dropped 4% with a third quarter loss, and again pointing to higher ore prices. so, what about the iron ore business? the world's largest producer, vale, is out with earning results tomorrow. shares are at a six-month high tonight ahead of those results. beyond earnings, research in motion saw a second day of nice gains. the company showed off its tablet device, helping spur this recent rally. here are the last 90 sessions for rim, and you can see the jump higher over the past couple
of sessions. today, it gained almost 6% on heavy volume. the company surprised the market, unveiling its tablet device called playbook late yesterday. up until yesterday, there had been some speculation the device wouldn't be ready for launch early next year as expected. finally, watch semiconductor maker broadcom tomorrow. shares were jumping after hours. shares were lower ahead of its earnings tonight. but after reporting record revenue and profit, the stock was over $39 dollars in after- hours action. that would be a three-year high if it holds until tomorrow. and that's tonight's "market focus." >> tom: as more and more of our
lives are lived on the internet, and more business is done on the web, being able to build and keep web sites running grows in importance. tonight's word on the street-- "online." james rogers is a reporter at thestreet.com. he joins us from the nasdaq. james, welcome back to n.b.r. nice to see you again. >> thank you, tom, nice to see you. >> tom: we're talking about the infrastructure of the internet, companies that do what, exactly? >> these are companies that could be providing things like content delivery, or managed host, or even econsumers' sites. we're not talking about google or yahoo or amazon. they're not household names. firms like digital river or ro rock space. they're under the radar, but they play a key, key role in our businesses and interact with the internet. >> tom: in some case, they're kind of the guts or the pipeline. the infrastructure. you mentioned data services company. earnings are due out later this week.
tomorrow, as a matter of fact, and the stock has had a nice run from a year ago. what is the growth driver? >> i think it is playing in a key, key area, that being content delivery. they arrange service for ecommerce. and they did some streaming which is very dear to my own heart. the thing that i love about them, though, is they have an amazing customer list. kind of like the who's who, apple, and amazon and yahoo. but as you correctly say, the stock has been on a real tear this year. i think this is one investors need to approach with a certain degree of caution. maybe wait for a pullback, like a better valuation. i think it is a good, strong story moving forward. >> tom: james, we have two more to get to and a couple of minutes. you mentioned volatility, and data services,
websites, and space is clearly getting more competitive. rax, the ticket symbol. had a runup over the summer and fall. what drives this one? >> rock spaces are a managed host and company. it is hotly tipped for future growth. there is a lot of movement in this spaceat movement. i see rock space as being one the major beneficiaries of this trend. from what we're hearing, they're doing a good job of growing out their eco-system. but the thing i love most about them is they've got a really healthy forward price to earnings ratio, particularly compared to better known like at&t. i think there is going to be more money for the managed hosts and services moving forward. >> tom: james, give us 30 seconds on rivers. d.r.i.v., the stock a new
52-week high. >> maybe not the best known of companies out there. they basically build ecommerce sites. again, they have a great customer list, but they did lose symantec. but it looks like they're getting over that. they put out great results last night, and i think though, again, this is a company that is going to be quite a good, long-term play. as one of the analyst firms mentioned, 2010 is being a transitional year for these guys. i think physical 2011 will. good. >> tom: how about disclosures, any ownership positions? >> none whatsoever. >> tom: you can read james article on thestreet.com. and you can find a link to it on our website as well. >> susie: here's what we're watching for tomorrow: the september reports on new home sales and durable goods, along with quarterly results from conoco-phillips, hess, proctor and gamble, and visa. also, we'll have two "street critique" guests to answer the
question, which is better to own-- gold, as in the yellow metal itself; or gold stocks, the companies digging it out of the ground. a legal victory today for amazon.com and some of its customers. a federal judge says the online retailer does not have to turn over customer names to tax officials in north carolina. he said those consumers, and the right to keep private what they buy, are protected by the first amendment. north carolina has been trying to get data on amazon customers to charge them state sales tax. lawyers for the state are now reviewing their options, including an appeal. >> tom: glaxosmithkline will pay $750 million and plead guilty to manufacturing and distributing tainted products. the settlement with the justice department is the latest in a growing number of whistleblower lawsuits involving pharmaceutical companies. glaxo was accused of knowingly selling contaminated baby ointment and an antidepressant that didn't work.
the whistleblower who filed the suit will get about $96 million from the settlement. a judge must approve the agreement. >> susie: big government-- whether you like it or not, it's a hot topic this election season. but tonight's commentator thinks we need to quantify just what "big" is. here's justin fox, editorial director at "the harvard business review."
>> there's an election coming up, and word is, the voters are mad. they're mad about the economy, and many are mad about big government. the economy part, i get. millions of people have been thrown out of their homes. the unemployment rate, if you count it right, is above 17%. then, there's big government. to most of us, that means bureaucrats, giant buildings in washington, grants to fund public television. well, this kind of non-defense discretionary spending is actually much lower now, as a share of the economy, than it was in the early 1980s. defense spending is down, too. the only part of government that has grown relative to the economy is entitlements, mainly social security and medicare. still, overall federal spending did jump in 2008 and 2009, and we've now got a $1.3 trillion deficit. but the main reason for the deficit may surprise you. imagine that federal spending and revenue had continued
growing at their pre-2008 rates- - that is, no financial crisis, bailout, recession, or stimulus. what would the budget picture look like, then? i did the calculations, and actual federal spending in the just-ended fiscal year was $186 billion higher than in my no-crisis scenario. but revenue was $681 billion lower. most of the deficit was caused not by an explosion in spending, but by a collapse in tax receipts, a collapse brought on by the lousy economy. so, definitely, be angry about the economy; big government-- maybe not. i'm justin fox. >> susie: and finally tonight, the material girl is now a fitness queen. madonna is opening a chain of fitness centers around the world that will merge exercise with entertainment. the ten new gyms known as hard candy fitness are planned for russia, brazil, argentina, and locations in europe and asia. the first location opens next
month in mexico city. so now, tom, in addition to music icon, actress and fashion designer, we can add workout guru and entrepreneur to madonna's resume. >> susie: that's "nightly business report" for tuesday, october 26. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everybody. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you.